Loughran Murphy Accountants in Wilmslow

We are happy to prepare dividend vouchers for you. Dividends are not liable to National Insurance Contributions.

If you decide to take dividends throughout the year, you must have the company profit to cover those dividends at the end of your financial year, unless you have retained profits brought forward from previous years. The correct definition of the word "dividend" is a "distribution of profits". Dividends cannot exceed profits. If there are no profits at all then it follows that there cannot be any dividends payable.

Sometimes dividends are taken throughout the year, in good faith, but when the accounts are finalised it then becomes apparent that dividends exceed profits. As long as the company is still trading this error can be rectified in a number of ways i.e. paying back the excess to the company, voting a bonus etc.

However, you should be aware that if the company ceases to trade, maybe due to insolvency, the Liquidator may consider that the correct legal procedure has not been followed and that the issue of dividends in excess of profits  is found to be unlawful. The Liquidator can recall the excess dividends paid. If the excess dividends are not repaid then not only is the recipient of the dividend liable but also the directors who facilitated the declaration of the dividend even if they did not benefit themselves. You need to be aware of your duty to issue dividends in a responsible manner.

Dividends do not reduce company profits. The dividend is a distribution of current profits or earlier years retained profits, after corporation tax has been paid on those profits. The Gross Dividend is added to your other taxable income. You have to pay income tax, as the top slice of your total income, on the Gross Dividend at one of 3 rates of tax, depending whether you are liable to tax at the basic, higher or addional rates of tax.


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Contact Details

Suite A,
65A Alderley Rd,
Cheshire, SK9 1NZ

email us : click contact us at the foot of the page

Telephone:-   01625 - 521666